T cell development in the thymus progresses as an ordered series of developmental steps best characterized by variable expression of CD4 and CD8 coreceptors. Most thymocytes are immature and express both CD4 and CD8 coreceptors on their surface and are referred to as 'Double Positive' (DP) cells. DP cells are the precursors of mature T cells which express only one coreceptor molecule and so are referred to as 'Single Positive' (SP) cells. Thus, DP thymocytes are bipotential cells with two alternative cell fates: to differentiate into CD4+ helper T cells or to differentiate into CD8+ cytolytic T cells. Development of a functionally competent immune system requires that thymocytes expressing MHC-II restricted T cell antigen receptors (TCR) differentiate into CD4+ T cells and those expressing MHC-I restricted TCR differentiate into CD8+ T cells. How DP thymocytes determine their appropriate cell fate has not been known. We have developed in vitro and in vivo experimental systems with which to study this problem on both cellular and molecular levels. We have discovered that DP thymocytes respond to intrathymic TCR signals by initially terminating CD8 transcription and differentiating into CD4+8- intermediate cells that express IL-7 receptors. The decision to differentiate into CD4+ vs. CD8+ T cells is made at this intermediate stage of differentiation and, remarkably, is based simply on whether TCR signals persist or cease. If TCR signals persist, intermediate CD4+8- cells continue to differentiate into CD4+ helper T cells; alternatively, if TCR signals cease, intermediate CD4+8- cells undergo a remarkable transformation that we have termed coreceptor reversal and differentiate into CD8+ T cells. Coreceptor reversal is mediated by IL-7 and involves silencing of CD4 transcription and re-initiation of CD8 transcription. The CD4 and CD8 coreceptor molecules play an important role in this process as termination of CD8 transcription in intermediate CD4+8- thymocytes leads to diminished CD8 expression and cessation of CD8-dependent TCR signals, that in turn leads to differentiation into CD8+ T cells. Thus, these results lead to a novel perspective on a major biological problem, namely how bipotential cells can determine their appropriate cell fate. Our results indicate that bipotential cells respond to differentiation signals by initially differentiating into a preprogrammed primary cell fate. They then evaluate whether the primary cell fate is appropriate by whether the initiating signal persists or ceases. If the initiating signal persists, they continue to terminally differentiate into their primary cell fate; but if the initiating signal ceases, they undergo developmental reversal and terminally differentiate into their secondary cell fate.